IMF warns banks most exposed to growing Russia conflict

Austrian, Swedish, French and Italian lenders are vulnerable in this situation.

Austrian banks are the most exposed to potential losses from tougher sanctions on Russia, while Swedish, French and Italian lenders are also vulnerable, the International Monetary Fund said, bloomberg.com informs, quoted by Agerpres.
“Spillover effects from geopolitical tensions between Russia and Ukraine thus far have been mostly felt in the countries directly involved,” staff at the Washington-based IMF wrote in a report released yesterday and dated June 25, before the latest rounds of sanctions from the U.S. and the European Union.
“An escalation of tensions through intensification of sanctions and retaliations may lead to larger spillovers across Europe, central Asia, and beyond,” the report stated.
The European Union curbed Russia’s access to bank financing and advanced technology in its widest-ranging sanctions yet over the Kremlin’s backing of the rebellion in eastern Ukraine.
Austrian banks are the most exposed relative to bank asset size, while French, Italian and Swedish banks have “relatively larger exposures compared to other advanced economies,” according to the fund’s “Spillover Report,” which assesses the impact of countries’ economic policies beyond their borders. If in difficulty, Austrian banks could curtail credit to emerging European markets, fund staff wrote.
“As Russian and Ukrainian credit quality deteriorates, banks with credit exposures will be faced with increased risks of default,” according to the report.
Raiffeisen Bank International AG, Societe Generale SA, UniCredit SpA, OTP Bank Nyrt. and Nordea Bank AB are the most vulnerable European banks to the political tensions, Goldman Sachs Group Inc. analysts wrote in a note to clients last week. The IMF didn’t cite any bank in yesterday’s report. While foreign bond holders and credit default swap underwriters are also exposed, the impact of their losses on global markets may be small, according to the IMF.
Speaking to reporters Wednesday in Washington, IMF Managing Director Christine Lagarde said the fund’s loan program to Ukraine is premised on having a resolution of the conflict on the eastern border “in the not too distant future.” Another contagion channel is commodities, the fund said, including the case of a sharp disruption of natural-gas supplies from Russia to Europe, which depends on the country for about a third of its needs.